How ‘Hybrid Electric Buildings’ Will Transform Commercial Real Estate

America’s commercial buildings are on the cusp of being radically redesigned into Prius-like hybrid energy centers. These buildings will create value by guaranteeing lower energy bills, plus increased worker productivity, while also delivering climate-changing environmental impacts.

Like hybrid electric cars, this is a global trend. The cost of enabling technologies is falling – driven by global economies of scale. In the U.S., the only question that impacts when “hybrid electric buildings” will be built in your town is tied to the pace of change in utility and regulatory policies that remove the legacy distinctions between energy solutions that sit “behind the meter” versus those supplied through the utility grid.

Hybrid electric building design

Today’s hybrid electric car uses more than 100 microprocessors to collect data that is feed into a smart operating system. These microprocessors integrate traditional gasoline engines with electric generators and regenerative brakes to achieve superior MPG results. The car’s microprocessors also feed information into dashboards, designed to be productivity tools that coach a driver on how their behaviors can reduce costs and emissions.

Hybrid electric buildings are a quantum technology leap. The difference is similar to that between a landline phone and a mobile smartphone. Hybrid electric design is a bridge – linking the values of grid service and onsite electrical systems to deliver guaranteed lower electric bills. By linking utility service and onsite technologies, hybrid electric buildings create owner and tenant value while also offering a value to the utility in the form of stored electricity and/or solar generation accessible during local or system critical-voltage time periods.

Hybrid electric design: Drivers and an implementation barrier

The following are the three drivers and key barrier to adoption of hybrid-energy building designs by the commercial real estate industry:

Driver: Escalating electric bills drive adoption. Similar to the Prius customer, reducing pain at the meter is the No. 1 driver pushing the adoption of hybrid electric buildings. The hybrid electric building is a disruptive leap beyond utility-sponsored energy efficiency rebates. For example, utility rebate programs target a specific replacement of one technology for a more energy efficient technology. To the frustration of the commercial real estate industry, the utility does not financially guarantee a lower monthly electric bill as a result of a building owner investing in the purchase of a rebate-linked technology.

In comparison, a hybrid electric building is designed to achieve guaranteed energy bill reductions. Guaranteed results are achieved through a hybrid electric building’s ability to assure a measured resulted that can be financially back-stopped with commercial performance insurance. An owner of a hybrid electric building will see a lower electric bill either through building operations or through a payment from the insurer. Unlike utility conservation programs, hybrid electric buildings are designed to achieve a guaranteed reduced energy bill.

Driver: Increasing utility service interruptions drive adoption. Disruption of utility service from weather volatility is now a business norm. Hybrid electric buildings are designed to continue operations during a utility’s service interruption. The hybrid electric building has onsite renewable generation plus onsite battery systems that can bridge six or more hours of utility service interruptions. They also have predictive operating systems that can optimize building operations to enable continued operations of key activities during a disruption. A hybrid electric building can make the difference between a business making money after a storm or closing down operations.

Driver: Millennials drive hybrid electric building designs. The millennial generation’s entry into the workforce is reshaping how commercial workspace is designed. The baby boomer generation’s office design legacy is the VP’s corner office with a view, interior cubes for work associates and lots of file cabinets. The millennial generation is pushing digital-centric open office designs that increase collaboration between work associates, accelerate learning, and provide a more humane and social experience.

The open office design preferred by the millennial generation also increases productivity-per-square-foot – which enables reduced office sizes, less energy consumption and fewer emissions. The open office design also enables hybrid electric building innovations by favoring daylight compared to electric light, plus increased deployment of sensor-based smart systems that can conserve electricity by operating electrical equipment in alignment with a building’s occupant needs and location.

Barrier: Utility and regulatory policies. The utility industry views a hybrid electric building as a micro-grid that combines onsite generation and onsite energy storage. Utilities often view a micro-grid as a threat to their revenues.

One path to align the interests of utilities and building owners is to re-position hybrid electric buildings as a capacity resource that utilities can aggregate like power plants. The aggregation of thousands of micro-grids will require a disruptive transformation in a utility’s system controls, the pricing of “behind-the-meter” capacity, and regulatory policy on how utilities should be compensated for their service. These issues of public and utility policy, rather than technology costs or capabilities, are the largest barrier to the adoption of hybrid electric buildings.

Susan Kennedy, founder of Advanced Microgrid Solutions, is pioneering a bridging solution. Kennedy is simultaneously approaching the California Energy Commission, the California Public Utility Commission and California’s utilities to develop a pilot project that will push for public and utility policy innovations that allow hybrid electric buildings to participate in utility’s bid solicitations for new generating capacity or electric storage. If such a project can be implemented, it will offer new precedents for the utility industry on how a utility can make money integrating hybrid electric buildings into their operations while also aligning with their customer’s growing search for technology solutions to higher electric bills.

Image credit: Future Agenda

Insights referenced in this article were drawn from the recently held Verexhange in Los Angeles, California.

Bill Roth is an economist and the Founder of Earth 2017. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017

First Green Business Coach for Entrepreneur.com. Founder of EARTH 2017, a website posting economic analysis on disruptive trends impacting communities and businesses. President of NCCT, a consulting company that coaches CEOs and business owners on pricing and marketing best practices proven to win the millennial generation, and their moms, as customers.